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Mortgage Market in Review – December 30, 2013

 

 

Market Comment

Mortgage bond prices finished the week lower which pushed rates higher. Rates improved Monday in response to weaker than expected consumer sentiment data. Sentiment came in at 82.5 versus the expected 83.3 mark. Unfortunately the improvements were short-lived as Richmond Federal Reserve President Lacker set off additional taper concerns. Lacker said, “”You have to consider the door open to us pausing if the data comes in weaker than thought or accelerating if the data comes in stronger.” Lower than expected weekly jobless claims added to the upward pressure on rates. Mortgage interest rates finished the week worse by approximately 1/4 of a discount point.

LOOKING AHEAD

Economic
Indicator

Release
Date & Time

Consensus
Estimate


Analysis

Consumer Confidence

Tuesday, Dec. 31,
10:00 am, et

74

Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

New Year’s Day

Wednesday, Jan. 1

 

Important. Shortened and thin trading conditions surrounding holiday may result in rate volatility.

Weekly Jobless Claims

Thursday, Jan. 2,
8:30 am, et

344k

Important. An indication of employment. Higher claims may result in lower rates.

Construction Spending

Thursday, Jan. 2,
10:00 am, et

Up 0.4%

Low importance. An indication of economic strength. Significant weakness may lead to lower rates.

ISM Index

Thursday, Jan. 2,
10:00 am, et

56.8

Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.

The Year Ahead

The future of the economy will continue to be debated. There is no certainty in predictions but the recent data and Fed statements clearly show signs of improvement. The uncertainty is whether the economic improvements are an indication of a solid footing or simply the result of the large Fed purchases often termed a “sugar high.” Data can be used to support both sides of the debate. What we can be certain of is the fact that mortgage interest rates are likely to remain volatile while the Fed continues to adjust their asset purchases. Historically, mortgage interest rates seem to improve slowly. In contrast, when rates increase, it is often quickly and furiously. One negative day often erases a week of positive improvements. Of course even that maxim was tested the last few months of last year as market swings of 1/2 a discount point both up and down were often seen in very short spans of time. There were interest rates movements of 100 basis points 6 times and 50 basis points over 37 times. On average, interest rates moved over 1/8% in rate every 7 days.

It is possible for mortgage interest rates to remain favorable considering the Fed still wants to keep them relatively low and continues to spend billions of dollars monthly to do so. However, we are in unprecedented times and rates rose toward the end of last year. The Fed isn’t the only player in the financial markets and there are many others buying and selling securities. Remember that the Fed does not directly dictate that mortgage interest rates will be at a certain rate. Rates are determined by the supply and demand for mortgage-backed securities and can change rapidly from hour to hour. However, the Fed is the major player in the market at this time and they do set the lead.

Despite volatility throughout 2013, the Fed still kept rates historically low. The big unknown is how things will play out this year as the Fed reduces their purchases. Now is a great time to take advantage of mortgage interest rates at these still favorable levels.

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